information technology and procurement process in kenya
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INFORMATION TECHNOLOGY AND PROCUREMENT PROCESS
IN KENYA
BY:
KIRAGU RUTH
A MANAGEMENT RESEARCH PROJECT SUBMITTED IN
PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE
AWARD OF THE DEGREE OF MASTER OF BUSINESS
ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF
NAIROBI
NOVEMBER, 2012
ii
DECLARATION
This research project is my original work and has not been submitted for examination in
any other university.
Signature: ……………………. Date: ………………………… NAME: KIRAGU RUTH WANJIKU
D61/61711/2010
This research project has been submitted for examination with my approval as the
university supervisor.
Signature……………………….. Date……………………………………..
NAME: DR. X.N IRAKI
LECTURER
SCHOOL OF BUSINESS
UNIVERSITY OF NAIROBI
iii
ACKNOWLEDGEMENT
I wish to acknowledge the support and advice of my lecturer and supervisor Dr. X.N Iraki
and my moderator Mr. J.T Kariuki. Their timely guidance and wise counsel in
completing this research project is extremely valued. I am forever grateful to my loving
and caring family. My father, Kiragu wa Magochi, my mother Wandia Kiragu, my sister
Wangu Kiragu, my brothers Mwangi Kiragu and Macharia Kiragu for ensuring that I
stayed focused. I am also grateful to my friends Magdalene Kamaru, Evelyn Rono, Joe
Makori and Janet Makena for walking with me through the entire journey. I say thank
you for all your support.
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DEDICATION
I dedicate this work to the almighty God who has blessed me with life and good health
and to the entire Kiragu’s family for their love and support all these years and throughout
my study period. God bless you all!
v
ABSTRACT
The main objective of the study is to asses’ the impact of information technology on
procurement process in Kenya. Organizations today continue to face business related
problems like collection of timely reliable and accurate information, processing, storing,
and retrieval for decision making and control of the organization. The application of
information technologies to procurement processes will change the way work is
performed, the number and skills of contracting personnel, and the procurement
organization's structure. Procurement plays a major role in organizations, which can
significantly influence a company’s success. As a core function it is, however, subjected
to the mega trends of the market. Its day to day existence is very much defined by
growing procurement volumes due to greater concentration of business on core
competences, globalization of procurement markets, growing market dynamics as well as
the ever shorter product lifecycle. For a procurement organization to operate both
efficiently and effectively in such a complex environment useful structures need to be
created and suitable instruments put to use. Information technology can have an
important function in this regard. Used appropriately it can offer: smoother and faster
process flow, efficient distribution of information, decentralization of tasks and decisions,
increased transparency and better control. In addition, information technology helps not
only to support internal processes, but also those involving business partners. The
research design used descriptive survey method aimed at establishing the impact of
information technology on procurement process in Kenya for companies listed in Nairobi
Securities Exchange. The study used stratified random sampling technique to select a
vi
sample of 37 employees from a population of 124. Questionnaires were distributed and
30 were fully completed and returned. This formed 81% of the population and it was
found to be sufficient for the study. The study concludes that, the ability to use
technology to improve the contracting process depends in part upon co-operation
between the organizations that maintain data and organizations that use the data.
Procurement systems promise to bring organizations one step closer to a scenario of
integrated, yet modularized systems, which are flexible enough to handle all the different
kinds of purchasing routines an organization usually has in place.
vii
TABLE OF CONTENTS
DECLARATION ................................................................................................................ ii
ACKNOWLEDGEMENT ................................................................................................. iii
DEDICATION ................................................................................................................... iv
ABSTRACT ........................................................................................................................ v
LIST OF FIGURES ............................................................................................................ x
LIST OF TABLES ............................................................................................................. xi
LIST OF ABREVISION AND ACRONYMS ................................................................. xii
CHAPTER ONE ............................................................................................................... 1
INTRODUCTION............................................................................................................. 1
1.1 Background of the Study .............................................................................................. 1
1.2 Research Problem ......................................................................................................... 3
1.3 Research Objectives ...................................................................................................... 5
1.4 Value of the Study ........................................................................................................ 6
CHAPTER TWO .............................................................................................................. 7
LITERATURE REVIEW ................................................................................................ 7
2.1 Introduction ................................................................................................................... 7
2.2 Procurement Process ..................................................................................................... 7
2.3 Procurement Performance ........................................................................................... 11
2.4 Information system used in Procurement Process ...................................................... 12
2.5 IT Procurement Process .............................................................................................. 13
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2.5 Challenges of implementing IT for Procurement Processes ....................................... 18
2.6 Summary of Literature Review ................................................................................... 19
2.7 Conceptual Framework ............................................................................................... 21
CHAPTER THREE ........................................................................................................ 22
RESEARCH METHODOLOGY .................................................................................. 22
3.1 Introduction ................................................................................................................. 22
3.2 Research Design.......................................................................................................... 22
3.3 Population of Study..................................................................................................... 23
3.4 Sampling ..................................................................................................................... 23
3.5 Data Collection ........................................................................................................... 23
3.6 Data Analysis .............................................................................................................. 24
CHAPTER FOUR ........................................................................................................... 25
DATA ANALYSIS, RESULTS AND DISCUSSION ................................................... 25
4.1 Introduction ................................................................................................................. 25
4.2 Demographic Characteristics ...................................................................................... 25
4.3 Procurement Process ................................................................................................... 30
4.4 Procurement Performance ........................................................................................... 32
4.5 IT Procurement Process .............................................................................................. 34
4.5.1 IT Procurement Process in the organizations ................................................... 36
4.5.2 Challenges faced in implementing IT for Procurement Processes ................... 38
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4.5.3 Possible solutions to challenges faced in implementing IT for Procurement
Processes .................................................................................................................... 39
CHAPTER FIVE ............................................................................................................ 41
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................................ 41
5.1 Introduction ................................................................................................................. 41
5.2 Summary of findings................................................................................................... 41
5.3 Conclusion .................................................................................................................. 42
5.4 Recommendations ....................................................................................................... 43
5.5 Suggestion for Further Studies.................................................................................... 44
REFERENCES ................................................................................................................. 45
APPENDICES .................................................................................................................. 49
Appendix I: QUESTIONNAIRE ...................................................................................... 49
Appendix II: List of listed companies in NSE .................................................................. 55
x
LIST OF FIGURES
Figure 4.1: Distribution of Gender.................................................................................... 25
Figure 4.2: Terms of employment .................................................................................... 27
Figure 4.3: Highest Attained Educational level ................................................................ 28
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LIST OF TABLES
Table 4.1 : Length of Service in the Current Job .............................................................. 27
Table 4.2: Procurement Process ........................................................................................ 30
Table 4.3: Procurement Performance ............................................................................... 32
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LIST OF ABREVISION AND ACRONYMS
NAPM National Association of Purchasing Management
CRM Customer relationship management
ERP Enterprise Resource Planning
EDI Electronic Data Interchange
IT Information Technology
MRP Material Requirements Planning
SCM Supply chain management
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Procurement refers to the purchasing of goods and services by organizations and
accounts for significant proportion of both public expenditure and the demand for goods
and services in the economy (Dong et al. 2009). Procurement plays a major role in
manufacturing and trade, which can significantly influence a company’s performance
(Blunt, 2010). Its day to day existence is very much defined by growing procurement
volumes due to greater concentration of business on core competences, globalization of
procurement markets, growing market dynamics as well as the ever shorter product
lifecycle (Blunt, 2010).
Procurement process involves the purchase of goods or services at the best possible cost
to meet the needs of the purchaser in terms of quality and quantity, time and location.
Procurement as a supply chain function has developed significantly over the decades;
initially it was a purely administrative function until Porter (1980), prompted firms to
think of procurement as a strategic function rather than an administrative one in his five
forces model where he show cases supplier and buyer power as two critical forces for
competitiveness.
Technology adoption research shows in almost all cases, especially in network
technologies such as ICT, that S-shaped adoption curves can be observed. The diffusion
of an innovation starts slowly with a few early adopters. Information technology
facilitates communication between individuals or groups who are not physically present
2
at the same location (Raymond, 2005). Systems such as telephones, telex, fax, radio,
television, and video are included, as well as more recent computer-based technologies,
including electronic data interchange and e-mail. In the early days of e-procurement,
buying enterprises and solution providers under estimated the time, effort, and resources
required to enable suppliers to transact business electronically. Leading enterprises
typically use a combination of supplier enablement approaches. Various approaches
with their benefits and trade-offs are reviewed (Lui, 2008).
Though tremendous progress has been made in supplier enablement, all involved parties
end users, suppliers, and solution providers continue to work to make enablement as
simple and cost effective as possible. Individual end users and entire business units will
naturally resist any change in business processes that takes away buying power and
buying flexibility (Lui, 2008). IT is transforming the way that business is conducted.
Computers prepare invoices, issue checks, and keep track of the movement of stock, and
store personnel and payroll records. The personal computers are changing the patterns of
office work, and the spread of information technology is affecting the efficiency and
competitiveness of business, the structure of the work force, and the overall growth of
economic output (Chismar and Kriebel, 2007). Purchasing department has been radically
changed by the development of the Information Technology (IT). Simply the
communication channels widened enormously, and the information exchange has
become significantly faster and broader, simplifying several steps with regards to
purchasing, and also enhancing fast decision making. Also the quality has improved,
costs have been reduced, and speed has increased. Many communication channels are
3
available like Internet, email, telephone, mobile communications, fax, video conference
calls, and GPS (Raymond, 2005).
Over the past few years, user adoption has increased at essentially the same pace as the
increase in suppliers enabled. With more products and suppliers on the e-procurement
system, users have less reason to try to circumvent the system. Still, end users report that
several factors continue to hold back user adoption, including inadequate representation
of spending categories within the system, inconsistent purchase requirements,
procedures, and supply bases by site or region, and a lack of executive mandates or
policies to drive adoption and system compliance. Best Practice enterprises have worked
on user adoption for years, and many supply executives at these enterprises have become
leading “sellers” of the e-procurement system to end users.
1.2 Research Problem
Organizations today continue to face business related problems like collection of timely
reliable and accurate information, processing, storing, and retrieval for decision making
and control of the organization (Osmonbekov, Bello and Gilliland, 2002). As compared
to modern ICT based procurement, traditional procurement was paper-based and
conversation-based (Bartezzaghi and Ronchi, 2003). In recent years, this has changed
somewhat to become a strategic function: procurement officers seek suppliers that fit
with a company's overall strategy. According to Stratman, (2007) poor records
management, documentation and filing system, lack of proper procurement planning and
effective post award contract management, inconsistency in making mandatory reporting
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to Public procurement oversight authority and lack of use of standard requisitions were a
clear indication of a failed process.
The procurement organizations are not satisfied with what has been achieved, and wish
to take advantage of further potential for optimization. The most important general
procurement goal set by the companies examined is the reduction of the purchasing
price and the total cost of procurement. Great importance is also attached to internal
process optimization (Caldwell, Roehrich and Davies, 2009). Its day to day existence is
very much defined by growing procurement volumes due to greater concentration of
businesses on core competences, globalization of procurement markets, growing market
dynamics as well as the ever shorter product lifecycle. Traditional procurement involves
getting quotes and then approval, probably from finance, as well as a purchase order,
which could take more than a week. With information technology, this process is
simplified and speeded up considerably, thanks to real-time interaction with pre-
approved suppliers and trading partners, who can be anywhere in the world. With online
purchasing, the purchase can be approved online and the order completed within
minutes; the required item often arrives within days (Lewis and Roehrich, 2009).
Local studies have been done on information technology and procurement process. For
instance, Hamada (2012), did a study on effects of information technology on supply
chain management a case of general motors east Africa where the study found a
significant study effect of information technology on supply chain management. Kiburi
(2008) did on factors influencing the implementation of e-procurement among firms
listed on the Nairobi stock exchange. Katana (2011) did on electronic procurement
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adoption: the case of Kenya ports authority. Study showed that firms’ that acquire
extensive IT resources are able to create competitive advantage. No known study has
been done on the impact of information technology on procurement process in Kenya.
Nevertheless, prior researches have difficulty providing evidence on positive
relationship between information technology and procurement process. The interest in
the study has been inspired by the existing knowledge in addition to the current
literature, creating further a gap in emerging cost reduction and their unique needs.
Mixed and inconclusive findings suggesting that a more in depth analysis is required;
therefore the study seeks to answer the following research questions;
1. What are types of information systems used in the procurement process in
companies listed in Nairobi Securities Exchange?
2. What is the impact of information technology on the procurement processes in
companies listed in Nairobi Securities Exchange?
3. What are challenges in implementing Information Technology for procurement
process in companies listed in Nairobi Securities Exchange?
1.3 Research Objectives
1. To determine the type of information systems used in the procurement process in
companies listed in Nairobi Securities Exchange.
2. To establish the impact of information technology on the procurement processes
in companies listed in Nairobi Securities Exchange.
3. To establish the challenges in implementing Information Technology for
procurement process in companies listed in Nairobi Securities Exchange.
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1.4 Value of the Study
The findings from the study will particularly be useful in providing additional
knowledge to existing and future organizations on the impact of information technology
on procurement process. This study will also be beneficial to all, private manufacturing,
private service providing companies and public sector since they will enhance the
realization on the impact of information technology on procurement process that are
majorly employed. The findings will also provide a useful reference document to stake
holders in the companies listed in Nairobi Securities Exchange and academic institutions
in their endeavors to formulate work plan to meet the performance.
Scholars, students and other researchers may also find the study helpful to identify
further areas of research built on the findings of this research. The study will be a source
of reference material for future researchers on other related topics; it will also help other
academicians who undertake the same topic in their studies. The study will also
highlight other important relationships that require further research; this may be in the
areas of impact of information technology on procurement process in Kenya for
companies listed in Nairobi Securities Exchange.
Most importantly, it will help the policy makers within the companies listed on the
Nairobi Securities Exchange to identify crucial areas in information technology and
procurement process. Also, through this study, leaders and managers in public sector
will learn and make responsible strategic plans and policy decisions that are meant to
facilitate and sustain high organizational performance, and manage organizational and
national resources so that corporations and societies can benefit from them in the future.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
Critical literature review was done to provide a guideline on how the research was to be
carried. The review focuses on the procurement process, types of information
technology, the impact of information technology on procurement process and
challenges in implementing Information Technology for procurement process.
2.2 Procurement Process
When accessing the needs of procurement, departments and agencies are responsible for
realistically determining the goods they need and the manner in which they will be
procured. They devise a mechanism, for planning in detail all proposed procurements
within its available resources, delivery time or completion date and benefits that are
likely to accrue in future. Any unrealistic assessment of procurement would tend to
minimize value for money or result in wastage of resources (Caldwell, Roehrich and
Davies, 2009).
In risk assessment, risks associated with the procurement of goods are identified and
s trategy is developed to manage them contingent plans are also formulated. Sometimes
risks are transferred to the contractor when he is considered most appropriate to manage
them. However, sharing of risks between both the parties in all the stages of
procurement process is considered to be the best possible approach in managing risks
(Caldwell, Roehrich and Davies, 2009).
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Proper and detailed specification is critical to procurement of goods of right quality and
need. It identifies what is required from the contractor and he is expected to bid against
the specifications given in the bid document. Specifications can be simple or complex
depending on the nature of procurement (Caldwell, Roehrich and Davies, 2009). In
order to ensure fair and impartial competition the specifications should be defined in
such a manner that it allows widest possible competition and should not favor any single
contractor or supplier nor put others at a disadvantage. Specifications should be generic
and should not include references to brand names, model numbers, catalogue numbers or
similar classifications (Caldwell, Roehrich and Davies, 2009).
In the approval mechanism, the Procurement Agency provides clear authorization and
delegation of powers for different categories of procurement. Procurements are initiated
once approval of the competent authorities, as per authorization and delegation of
powers, is accorded (Lewis and Roehrich, 2009). When selecting the method of
procurement, open competition is considered to be the best basis for efficient public
procurement to ensure that value for money has been obtained. Various methods of
procurement are provided in the relevant manuals, rules and regulations and policy
guidelines issued by the Governments and international institutions (Caldwell, Roehrich
and Davies, 2009).
During prequalification of bidders, in case of procurement of expensive and technically
complex goods, the procurement agency ensures that only technically and financially
capable firms/contractors having adequate managerial capability are invited to submit
bids (Lewis and Roehrich, 2009). This is done prior to floating of tenders, invitation to
9
proposals or offers in procurement process. Such pre-qualification is solely based upon
the ability of the interested parties to perform that particular work satisfactorily. The
procurement agency while engaged in pre-qualification usually takes into consideration
relevant experience, past performance, capabilities with respect to personnel, equipment,
financial position, appropriate managerial capability of the contractors to ensure that
contract will be performed successfully (Lewis and Roehrich, 2009). Pre-
qualification process is notified and a set of pre-qualification documents is provided to
all competitors. After pre-qualification process, the pre-qualified contractors are notified
and they become entitled to participate further in the procurement process.
The bidding documents provide all the general and special conditions of contract and
other necessary information to enable the potential bidder to clearly understand their
requirements and submit his responsive bid in time. These documents define the risks
and responsibilities of the buyer and the seller. The bidding documents should be
carefully prepared by skilled professionals to ensure that all the terms and conditions of
the procurement are incorporated in these documents and they are clear, precise and
definite (lewis and Roehrich, 2009).
This is post-advertisement stage in which the Procurement Agency issues bid documents
to the prospective contractors to enable them to submit bid for award of contract. Bid
documents form the basis of award of contract to the successful bidder. Bid documents
are very comprehensive and include invitation to bid, instructions to bidders, form of
bid, form of contract, general or specialized conditions of contract, specifications and
drawings or performance criteria (where applicable), delivery time or delivery schedule,
10
bill of quantities or list of goods, bid evaluation criteria, format of all securities, details
of standards to assess quality of goods and any relevant information required by the
Procurement Agency (Caldwell, Roehrich and Davies, 2009).
Evaluation of bids is the most important stage in the procurement process that leads to
selection of the successful bidder. The bids are evaluated against the performance
criteria (technical, commercial and financial) already laid in the bid documents. For the
comparison of bids quoted in different currencies, the price is converted into a single
currency specified in the bidding documents. After the bid is opened, no bidder is
allowed to alter or modify his bid. The procurement agency will not introduce any
condition which may discriminate between bidders. Award and signing of the contract is
done on the basis of results of evaluation bid, the bidder with the lowest evaluated bid is
awarded the procurement contract (Caldwell, Roehrich and Davies, 2009). The
successful bidder furnishes the performance guarantee as per requirements specified in
the bid documents. Usually no negotiation is allowed with the bidder having submitted
the lowest evaluated bid or with any other bidder.
Contract administration is the implementation stage of the procurement process. A good
contract administration is critical to the successful completion of a contract. A working
mechanism is developed to ensure that it facilitates both parties to meet respective
obligations as efficiently and effectively as possible (Caldwell, Roehrich and Davies,
2009).
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2.3 Procurement Performance
The procurement function has not been given the recognition it deserves in developing
countries, in most public entities, regardless of the effort by the partners like the World
Bank, the International Trade Organisation, the United Nations Conference on Trade
and Development, the World Trade Organization and, others. This could be deliberate or
sheer ignorance on the value the procurement function could contribute to any
organization (Telgen, Zomer, & de Boer, 1997).
For any organization to change its focus and become more competitive, Amaratunga &
Baldry (2002) suggest that performance is a key driver to improving quality of services
while its absence or use of inappropriate means can act as a barrier to change and may
lead to deterioration of the purchasing function. Organizations which do not have
performance means in their processes, procedures, and plans experience lower
performance and higher customer dissatisfaction and employee turnover (Artley &
Stroh, 2001, Amaratunga & Baldry, 2002 and CIPS Australia, 2005). Measuring the
performance of the purchasing function yields benefits to organizations such as cost
reduction, enhanced profitability, assured supplies, quality improvements and
competitive advantage as was noted by Batenburg & Versendaal (2006). An important
step towards reducing these risks is to make a realistic assessment of those that are most
likely to occur in any procurement. There are some of most likely risks can be avoided
or controlled by careful preparation and good information (Artley & Stroh, 2001).
12
2.4 Information system used in Procurement Process
Enterprise resource planning (ERP) integrates internal and external management
information across an entire organization, embracing finance/accounting, manufacturing,
sales and service and CRM. ERP systems automate this activity with an integrated
software application. Its purpose is to facilitate the flow of information between all
business functions inside the boundaries of the organization and manage the connections
to outside stakeholders (Telgen, Zomer, & de Boer, 1997). Enterprise resource planning
(ERP) as an extension of material requirements planning (MRP), later accounting
resource planning and computer-integrated accounting. Without supplanting these terms,
ERP came to represent a larger whole, reflecting the evolution of application integration
beyond accounting (Raymond, 2005).
ERP is a business management system made up from a collection of applications or
modules that integrates company functions such as marketing, finance, manufacturing
and logistics (Helo and Szekely, 2005). ERP uses database technology to control and
integrate information related to a company’s business including data related to
customers, suppliers, employees and finance. All business transactions, such as
inventory management, production planning and distribution are entered, recorded,
processed, monitored and reported (Helo et al., 2008).
An information technology (IT) specification is a description of a technology product or
service a customer seeks to procure and is also a description of what a supplier must be
prepared to offer to be considered for an award. International studies reveal that in spite
of a growing proportion of purchased services, the management of these costs and
13
processes is not yet very advanced compared with cost management of direct and
indirect goods(Caldwell, Roehrich and Davies, 2009)
2.5 IT Procurement Process
Business benefits achieved through successful e-procurement initiatives include cost
reductions, closer relationships, improved information, increased efficiencies and the
strategic use of purchasing staff. Cost reductions in companies can realize significant
reductions in both the cost of purchased items and the actual cost of processing a
purchase order. By aggregating total purchases, contract pricing can be based on volume
thresholds. This results in lower costs for individual items where larger volumes are
purchased. Supporting this theory, the National Association of Purchasing Management
(NAPM) estimates that company’s pay 15-25% more for goods and services when an
employee makes a purchase that does not leverage an existing contract (Lui, 2008).
Through closer relationships with a smaller number of suppliers, better delivery terms
can be negotiated with multiple orders consolidated into single deliveries. “Maverick
purchasing” is reduced by limiting employee purchasing to a range of approved vendors,
thereby controlling and reducing overall purchasing spend. Research by the Aberdeen
Group estimates leakage (buying off contract) alone accounts for 30-40% of a
company’s OR spend (Robert, 2003). Costs are reduced as end users can prepare their
own orders for approved vendors at approved pricing levels with no interaction with the
purchasing department. Approvals, when required, are routed electronically, reducing
internal lead times. This also has the benefit of reducing errors by electronically
transmitting data.
14
Leveraging Information in electronic procurement enables visibility of organizational
purchasing data, creating the opportunity to negotiate better terms with suppliers based
on volumes, price & quality. Similarly, supplier performance metrics for on-time
shipments, quality and invoicing can be considered when negotiating terms with
suppliers and determining sourcing strategies for items/categories of items (Rai,
Patnayakuni and Seth, 2006). By analyzing the purchasing history, organizations can
calculate the total cost of ownership rather than just the purchase price. Information can
also be leveraged by end users to track status, delivery and payment terms. This allows
them to plan and manage order requirements. Storing and maintaining information in a
central database of supplier catalogues and pricing information allows users to order
against current pricing data and approved suppliers.
ICT increases efficiencies - that is workflow from producing a purchase request through
to payment can be managed electronically by e-procurement processes, reducing errors
and processing time. These efficiencies enable a reduced cycle time from requisition to
payment. The Aberdeen Group estimates the time saved at 70%. These timesaving
allowed reduced inventory levels, resulting in additional cost savings through better cash
flow and lessened inventory carrying costs (Rai, Patnayakuni and Seth, 2006). Minimum
order quantities and spending amounts can be set for users or departments enabling
consolidation of multiple purchase requests. This has the benefit of reducing the total
number of purchase orders, which in turn reduces processing costs (Lui, 2008).
Company’s employs technology in procurement, as it is primarily a business issue.
Consequently, new initiatives require dedicated analysis and planning to minimize
15
associated risks. A risk area often overlooked and under-estimated in e-business
initiatives is the impact on people within, and people external to, the organization
(Lewis and Roehrich, 2009). When the role of purchasing takes on strategic rather than
tactical importance, organizational change ensues. If procurement has always been a
lengthy, centralized process in an organization, changing the process to enable desktop
ordering by approved employees represents a significant change that needs to be
managed (Telgen, Zomer, & de Boer, 1997).
According to Ray, Muhanna, and Barney, (2005) training and support for purchasing
staff with new responsibilities and end users is an important component in managing this
change. In addition, senior management must show leadership and support the
implementation of change by insisting on compliance. Managing supplier perceptions is
critical as trust and common understanding in supplier relationships are essential for
project success. Communication with suppliers should include project goals that
reinforce the message that e-procurement is also designed to strengthen existing supplier
relations. This encourages suppliers to view initiatives as opportunities rather than
threats (Lewis and Roehrich, 2009).
Changes to internal processes will extend outside organizational boundaries, impacting
interactions with suppliers and customers (Wenyang, 2005). This presents an
opportunity to strengthen relationships with suppliers to further drive efficiencies and
increase the positive impact on organizations’ bottom lines (Kohli and Grover, 2008).
An e-procurement project should be undertaken as part of a total supply management
strategy. The project is started by examining the current amount of suppliers and the
16
amount spent with each. This information can be difficult to determine because the data
may not be available or in a format conducive to comparison. This analysis will form the
basis for rationalizing the number of suppliers and determining with whom to negotiate
pricing and terms (Robert, 2003).
It is also important to determine what organizations are trying to achieve and how
success will be measured (Wenyang, 2005). Prior to purchasing a software package to
automate the new process, organizations should determine their required functionality.
They then can determine the best fit by knowing what questions to ask and testing
several vendors. Organizations should then examine current processes, and take the
opportunity to change and improve processes rather than just automate current ones. A
thorough analysis will provide ample justification for taking the time to re-engineer
processes. The final key to improving processes is ensuring proper controls are put in
place to minimize risk and ensure compliance is monitored (Deming, 1986).
Deployment processes consist of activities that are performed (to a greater or lesser
extent) each time an IT product or service is acquired (Robert, 2003). The specific
procurement can be thought of in terms of a life cycle that begins with requirements
determination, proceeds through activities involved in the actual acquisition of a product
or service, and is completed as the terms specified in the contract are fulfilled. Each IT
product or service that is acquired has its own individual iteration of this deployment life
cycle (Carlsson, 2003).
17
Requirements determination is the process of determining the business justification,
requirements, specifications and approvals to proceed with the procurement process
(Deming, 1986). It includes sub-processes such as organizing project teams, using cost-
benefit or other analytic techniques to justify investments, defining alternatives,
assessing relative risks and benefits defining specifications, and obtaining necessary
approvals to proceed with the procurement process.
Acquisition is the process of evaluating and selecting appropriate suppliers and
completing procurement arrangements for the required products and services. It includes
identification of sourcing alternatives, generating communications (such as RFPs and
RFQ) to suppliers, evaluating supplier proposals, and negotiating contracts with
suppliers.
Contract fulfillment is the process of managing and coordinating all activities involved
in fulfilling contract requirements. It includes expediting of orders, acceptance of
products or services, installation of systems, contract administration, and management of
post-installation services such as warranty and maintenance, and disposal of obsolete
assets (Robert, 2003).
Management Processes- consist of those activities involved in the overall governance of
IT procurement. These activities are not specific to any particular procurement event,
but rather are generalized across all such events. Three general classes of IT
procurement management processes are supplier management, asset management, and
quality management (Carlsson, 2003).
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Supplier management is the process of optimizing customer-supplier relationships to add
value to the business. It includes activities such as development of a supplier portfolio
strategy, development of relationship strategies for key suppliers, assessing and
influencing supplier performance, and managing communication with suppliers (Robert,
2003). Asset management is the process of optimizing the utilization of all IT assets
throughout their entire life cycle to meet the needs of the business (Ray et al. 2005). It
includes activities such as development of asset management strategies and policies,
development and maintenance of asset management information systems, evaluation of
the life cycle cost of IT asset ownership, and management of asset re-deployment and
disposal policies. Quality management is the process of assuring continuous
improvement in the IT procurement process and in all products and services acquired for
IT purposes in an organization. It includes activities such as product testing, statistical
process control, acceptance testing, quality reviews with suppliers, and facility audits.
2.5 Challenges of implementing IT for Procurement Processes
According to Lysons M. (2003), Globalization and international trade issues pose
potential barriers to establishing procurement programs for both governments and
private firms. Eco-labels have in the past, and likely in the future, will be discussed as a
“barrier to trade” issue. There have been instances where Eco labeling has been designed
to support certain products within specific markets (e.g., the overwhelming demand by
consumers in the UK for labeling of GMO foods). As a result, eco labeling organizations
tend to use clear, science based, environmental criteria when establishing their
programs. For instance, the Municipality of Kolding, Denmark, cannot request that
products have an Eco label (such as the Nordic Swan or the EU flowers) when designing
19
calls for tenders with environmental criteria. This is because such requests would not
comply with the World Trade Organization’s Government Procurement Agreement and
European Union legislation on free market and equal opportunities. Instead,
municipalities can specify environmental requirements similar or identical to those
required by an Eco label. It is important to note a recent report by the CEC group on
“Green Procurement in Trade Policy” which concludes that agreements such as the
Uruguay Round Agreements, the North American Free Trade Agreement.
2.6 Summary of Literature Review
Electronic business is the process which uses Internet technology to simplify certain
company processes, improve productivity and increase efficiency. Podlogar (2006)
points some facts about process reengineering that are strongly connected to the process
simplification, including: awareness of technology opportunities, ability to achieve
process effectiveness, readiness for e-procurement collaboration, satisfaction and
positive e-procurement experiences sharing and environment changing response. The
groups of factors discussed above explore simplicity of business data processing with
regard to processes that are necessary for the execution of the entire procurement
process. At the first stage, it is important to identify findings associated with electronic
commerce in procurement process that are important for its development and
implementation. Distinguishing the significant electronic commerce variables in
procurement process as well as the degree of their impact and significance on the
procurement process will allow new business models to be developed. As mentioned re-
engineering in simplifying the business process in e-Commerce will lead to capturing
more opportunities and benefits in e-Commerce. Based on responses, we can conclude
20
that e-Commerce in the procurement process simplifies the separate sub-process of
procurement. Enterprises, which endeavor to have a success in doing business
electronically, should simplify sub-processes, namely: receiving of delivery data
Announcement (shipment announcement), possible supplier's requisition request,
transport ordering, and reclamation solving and bidding.
21
2.7 Conceptual Framework
Figure 2.1: Conceptual framework
Independent variables Dependent variable
Source; (Author) 2012
Information Technology
Assessing the needs of procurement
Risk assessment in procurement
Specification
Approval mechanism
Prequalification of bidders
Selection of Method
Invitation to bid
Issue of Bid Documents and opening of Bids
Bidding Document Preparation
Evaluation of bids
Award and Signing of contract
Contract Administration
22
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter outlines the methods that were adopted by the study in obtaining impact of
information technology on procurement process in Kenya for companies listed in
Nairobi securities exchange. The chapter also describes and explains the research
instruments that were used in the study. The chapter is thus structured into research
design, target population, sample and sampling techniques, data collection and data
analysis techniques.
3.2 Research Design
The research design was descriptive survey method aimed at establishing impact of
information technology on procurement process in Kenya for companies listed in
Nairobi Securities Exchange. Phil (1996) says that descriptive research studies are
designed to obtain information concerning the current situation and other phenomena
and wherever possible to draw valid conclusion from the facts discussed. According to
Zinkmund (2000), “descriptive research studies are based on some previous understating
of the nature of the research problem”. This is a survey research to explore the existing
status of two or more variables at a given point in time. These methods were preferred
because it allows for prudent comparison of the research findings. Descriptive survey
attempts to describe or define a subject often by creating a profile of a group of
problems, people or events through the collection of data and tabulation of the
frequencies on research variables or their interaction as indicated.
23
3.3 Population of Study
According to Trochim (2006), Target population refers to the entire group of individuals
or objects to which researchers are interested in generalizing the conclusions. The target
population of this study consists of procurement and IT managers from all 62 companies
listed in Nairobi Securities Exchange these including Agricultural, Telecommunication
and technology, Banking, Insurance, Investment, Manufacturing and allied,
Construction and allied and Energy and petroleum sectors (as shown in appendix II)
3.4 Sampling
The study used stratified random sampling technique to select a sample of 37 employees
from a population of 124. The goal of stratified random sampling is to achieve the
desired representation from various sub-groups in the population. Mugenda and
Mugenda (2003), states that a sample of 30% is considered representative for a
population less 500. So if the population is less or equal to 30% it is appropriate to carry
out census study. The sample size is justified by 30% since it will minimize the duplicity
and redundancy of the data to be obtained and the size is large enough to ensure
collection of comprehensive data.
3.5 Data Collection
The study relied on primary data which was collected through administering a structured
questionnaire comprising closed and open-ended questions, developed in line with the
objectives of the study. The study sought responses from heads. The target population of
this study consisted of procurement and IT managers from all 62 companies listed in
Nairobi Securities Exchange these including Agricultural, Telecommunication and
24
technology, Banking, Insurance, Investment, and Manufacturing and allied,
Construction and allied and Energy and petroleum sectors.
The questionnaire was divided into four parts. Section A covered general information,
Section B focused on Procurement Process, Section C on Procurement Performance and
Section D on IT Procurement process in Kenya for companies listed in Nairobi
Securities Exchange. The questionnaire was administered through drop and pick
method.
3.6 Data Analysis
The process of data analysis involved several stages: the completed questionnaires were
edited for completeness and consistency, checked for errors and omissions and then
coded. Data was analysed using descriptive analysis such as descriptive statistics mean
scores and standard deviations frequencies distributions and percentages. The results
were presented in table and charts.
25
CHAPTER FOUR
DATA ANALYSIS, RESULTS AND DISCUSSION
4.1 Introduction
This chapter provides an analysis of data collected from the field. The results are
presented in tables and figures to highlight the major findings. They are also presented
sequentially according to the research questions. Mean scores and standard deviations
analysis was used to analyze the data collected. The raw data was coded, evaluated and
tabulated to depict clearly the results of impact of information technology on
procurement process in Kenya.
4.2 Demographic Characteristics
The study sought to establish the information on the respondents employed in the study
with regards to the gender, duration of service, terms of employment and their level of
education. These bio data points at the respondents’ appropriateness in responding to the
study questions required for the study to be complete.
26
Figure 4.1: Distribution of Gender
The respondents were asked to show their gender, this was expected to guide the
researcher on the conclusions regarding the degree of congruence of responses with the
gender characteristics on the impact of information technology on procurement process
in Kenya. The results as shown in the figure 4.1 show that majority of the respondents
were male at 63% while female were 37%. This indicates that majority of the staff
working in areas of Procurement and as IT managers in the companies listed in Nairobi
Security Exchange were male. More men have specialized in the field of procurement
and information technology in most firms than woman. Since the public sector
introduced the two third gender balance, listed firms are recognizing the importance of
gender balance in its labor force.
27
Table4.1: Length of Service in the Current Job
Years Frequency Percentage
3yrs and below 6 20
3 to 5 years 12 30
5 to 7 years 9 40
Over 7 years 3 10
Total 30 100
Table 4.1 presents the findings on the duration of respondents work in the present
capacity. From the figure, 40% indicated that they had been in the present company for
5-7 years, 30% indicated a period of 3-5 years, and 20% indicated a period of less than 3
years while 10% indicated a period of over 7 years. These findings indicated that
majority of the staff working as procurement and IT managers in companies listed in
Nairobi Securities Exchange have worked at their present company for a period of 5-7
years thus had rich experience in the field and therefore appropriate in giving
information on our study and also they appreciated the need for the study. Most listed
firms require experienced persons. Experienced employees are a source of competitive
advantage for most listed firms in Nairobi Securities Exchange, this firm’s work hard to
retain these experienced employees.
28
Figure4.2: Terms of employment
From figure 4.2 shown above, 70% of the respondents were in permanent employment,
20% had been employed in contract while 10% had been employed on temporary basis.
These findings indicate that majority of the respondents had been employed on
permanent basis in their firms therefore they were in the best position to understand the
need of the study and were in a position to give appropriate information for the study.
In order to motivate and retain employees most listed firms in Nairobi Securities
Exchange engage their staff on permanent terms hence giving them a sense of security.
29
Figure4.3: Highest Attained Educational level
The respondents were asked to show their highest attained education level. Figure 4.3
shows that majority of the respondents working in firms listed in the Nairobi Securities
Exchange had attained their education up to university level while 20% had attained
their education up to college level. This means that majority of those working in the
Procurement field and IT had attained education up to university level and had gained
rich information and they were conversant with the process, therefore they were
appropriate for responding to our study questions.
Since this companies are in a very competitive environment where the best managed
company attracts capital from financial institutions, this firms set high standards to the
employees they recruit as shown in Figure 4.4; where 80% of respondents are university
graduates.
30
4.3 Procurement Process
The respondents were asked to indicate the extent to which IT was employed in the
procurement process in their organization. The table below shows the study results.
Table4.2: Procurement Process
Description N Min Max Mean Variation
Standard deviation
Bidding Document Preparation 30 1 4 3.8714 1.0718 0.3779
Invitation to bid 30 1 4 3.8001 1.0005 0.3124
Approval mechanism 30 1 4 3.5471 0.7475 0.8574
Specification 30 1 4 3.2658 0.4662 0.5685
Selection of Method of procurement
30 1 4 3.2158 0.4162 0.6985
Assessing the needs of procurement
30 1 4 3.0625 0.2629 0.9685
Contract Administration 30 1 4 2.9487 0.1491 0.527
Prequalification of bidders 30 1 4 2.6581 -0.1415 0.6372
Issue of Bid Documents and opening of Bids
30 1 4 2.0235 -0.7761 0.9961
Evaluation of bids 30 1 4 1.9658 -0.8338 0.6875
Award and Signing of contract 30 1 4 1.6256 -1.174 0.6208
Risk assessment in procurement 30 1 4 1.5624 -1.2372 0.3265
Average score 2.7996 0.6315
From the descriptive statistics in the table shown above, the extent to which Information
and technology is used in procurement process for companies listed in the Nairobi
Securities Exchange. The results show that information and technology was mainly used
31
to a great extent in the following areas: Bidding Document Preparation, Invitation to bid
and Approval mechanism. They were represented by means of 3.8714, 3.8001, and
3.5471 respectively. The processes indicated to have been used at a moderate extent
include: Specification, Selection of Method of procurement, Assessing the needs of
procurement, Contract Administration and Prequalification of bidders. The means are as
follows: 3.2658, 3.2158, 3.0625, 2.9487 and 2.6581. Technology was used on Issue of
Bid Documents and opening of Bids, Evaluation of bids and Risk assessment in
procurement and awarding and signing of contracts at a low extent. The standard
deviation show the spread of ideas of the respondents and from the table the standard
deviation ranges from 0.3265 to 0.9685 indicating that it is a small value thus
respondents were agreeing to the same idea. The process of Bidding Document
Preparation, Invitation to bid and approval mechanism were rated highest because they
enable the procurement process to unfold in a faster, more efficient and effective
manner, with fewer errors and helps in cost saving. This cost reduction is associated
with less paperwork, which translates into fewer mistakes and a more efficient
purchasing process. The purchasing process is simplified and also has a favorable
impact on the purchasing cycle time. Faster cycle time provides increased flexibility and
more up-to-date information at the time of placing a purchasing order.
The use of IT in Bidding Document Preparation, Invitation to bid, Approval mechanism
were represented by means of 3.8714, 3.8001, and 3.5471 respectively, most listed
organizations highly rate this activities in order to maximize the use of IT, use of
paperless process in procurement process, puts up strong control in purchases. Use of IT
in Bidding Document Preparation, Invitation to bid, Approval mechanism introduce new
32
central controls to ensure greater consistency, improve procurement efficiency and
creates integration with other departments.
4.4 Procurement Performance
The respondents were asked to indicate the extent to which they agreed with the
procurement performance in relation to information system. The table below shows the
study results.
Table 4.3: Procurement Performance
Description N Min Max Mean Variation
Standard
deviation
Improving quality of services while
its absence or use of inappropriate
means can act as a barrier to change
and may lead to deterioration of the
purchasing function
30 1 4 2.3564 -0.9304 0.3004
Measuring the performance of the
purchasing function yields benefits
to organizations such as cost
reduction, enhanced profitability,
assured supplies, quality
improvements and competitive
advantage.
30 1 4 3.7146 0.4278 1.2365
An important step towards reducing
these risks is to make a realistic
assessment of those that are most
likely to occur in any procurement
30 1 4 3.7894 0.5026 0.9874
Average score 3.2868 0.8414
33
On the descriptive statistics on table 4.3 shows that 30 respondents were interviewed on
procurement performance in relation to information system. Majority of the respondents
agreed to a high extent that measuring the performance of the purchasing function yields
benefits to organizations such as cost reduction, enhanced profitability, assured supplies,
quality improvements and competitive advantage and an important step towards
reducing these risks is to make a realistic assessment of those that are most likely to
occur in any procurement with means of 3.7894 and 3.7146. Improving quality of
services while its absence or use of inappropriate means can act as a barrier to change
and may lead to deterioration of the purchasing function was indicated as to affect
performance at a low extent m= 2.3564.
Measuring purchasing performance is important as the purchasing department plays an
ever increasingly important role in the supply chain in an economic downturn. A
reduction in the cost of raw material and services can allow companies to competitively
market the price of their finished goods in order to win business. An obvious
performance measure of the success of any purchasing department is the amount of
money saved by the company. However, there are a number of performance
measurements that businesses can use when they measure purchasing performance.
Other benefits of measuring purchasing performance is that it yields benefits to
organizational functions, where if its performance is well measured and managed, leads
to long term supplier relations, procurement persons can regularly carry out market
surveys in order firms source product or services at a reasonable cost while maintaining
close supplier relationship.
34
4.5 IT Procurement Process
The respondents were asked to indicate the Information Systems used in the
Procurement Process in their organization and to explain how they have eased the
process. Some of the listed systems include:
Table4.4: IT Procurement Process
Description Frequency
Electronic procurement system (E-procurement 25
Electronic Data Interchange systems (EDI 10
Electronic Mail 30
Data Bases 30
Networks 30
Expert Systems 27
Electronic procurement system (E-procurement): This is software that allows
purchasers to access supplier’s catalogs via the Internet, as well as accepting electronic
invoices. The purchasers select their materials, indicate the accounts to be charged for
the purchase, and create a purchase order in the accounting system. All procurement-
related activity is completed in the electronic system, reducing paperwork and increasing
efficiency. The systems were only used in few of the companies listed in Nairobi
Securities Exchange and that means they have not become popular in most companies.
Electronic Data Interchange systems (EDI): EDI deals more with the way information
is communicated during procurement than it does with the act of linking buyers and
suppliers. By definition, EDI is the electronic exchange of business information,
35
purchase orders, invoices, bills of lading, inventory data, and various types of
confirmations between organizations or trading partners in standardized formats. EDI
also is used within individual organizations to transfer data between different divisions
or departments, such as finance, purchasing, and shipping. Two characteristics set EDI
apart from other ways of exchanging information. First, EDI only involves business-to-
business transactions; individual consumers do not directly use EDI to purchase goods
or services. Secondly, EDI involves transactions between computers or databases, not
individuals. Therefore, individuals sending e-mail messages or sharing files over a
network does not constitute EDI.
Electronic Mail: E-mail messages can request input or advice or distribute documents
by broadcasted messages for IT Procurement Process in the organization. In
procurement, E-mail messages can disseminate draft procurement plans for comment or
be used to obtain staff legal counsel or advice from small business specialists.
Data Bases: Procurement automation is the combination of these mass storage devices
with relational data bases using fourth generation languages. Such combinations permit
relatively easy access by users to almost unlimited amounts of information. Data bases
available on computers situated at remote locations are easily accessible today.
Networks: Networks use electrical or optical connections to tie together computer
workstations, terminals, small computers, and mainframe computers. Advanced
technology is now revolutionizing data communications so that a buyer can
electronically obtain volumes of information wherever it resides. The buyer can do so
36
because high-speed telecommunications circuits permit the transfer of great volumes of
data.
Expert Systems: The purpose is to provide users with answers to problems based on the
knowledge of experts in that field. The logic of an expert's rules for a given situation can
be programmed into software to assist a buyer with a decision.
4.5.1 IT Procurement Process in the organizations
The respondents were asked to indicate their level of agreement with the following
statements regarding IT Procurement Process. The table below shows the study results.
Table 4.5: IT Procurement Process. In the organizations
Description N Min Max Mean Variance Standard
deviation
Your Business benefits through e-
procurement initiatives include
cost reductions, closer
relationships, improved
information, increased efficiencies
and the strategic use of purchasing
staff
30 1 4 3.7968 0.0915
0.8745
IT procurement process enhances
cost reductions in companies can
realize significant reductions in
both the cost of purchased items
and the actual cost of processing a
purchase order
30 1 4 3.6259 -0.0794
0.8754
37
IT procurement process brings
closer Relationships with suppliers
30 1 4 3.8658 0.1605
0.3758
Leveraging Information in
electronic procurement enables
visibility of organizational
purchasing data, creating the
opportunity to negotiate better
terms with suppliers based on
volumes, price & quality
30 1 4 3.5326 -0.1727
0.5647
Average score 3.7053 0.6726
From the findings all the means were above 3.5 indicating majority of the respondents
agreed to the statements on IT procurement process in the organization. This indicates
that IT in procurement is of great benefit to the organizations. Information technology
makes a very significant or fairly significant contribution to carrying out the
procurement function successfully. This seems to provide a good foundation for its use
in assisting further developments in most procurement organizations. There is no
uniform picture of either the sector or the procurement volume of companies whose
contribution is estimated as rather low or very low. A properly implemented e-
procurement system connects to a company’s internal systems, such as accounts
payable, as well as directly to their vendors and suppliers, allowing system-to-system
integration and automation of much of the purchasing process.
38
4.5.2 Challenges faced in implementing IT for Procurement Processes
Description N Min Max Mean Variance Standard
deviation
High introduction costs for new
solutions.
30 1 4 3.2614 0.1366 0.8881
Suppliers were slow to link up with
the procurement system
30 1 4 3.1547 0.0299 0.3010
Difficulty in judging usefulness
and potential of new IT solutions
30 1 4 2.5214 -0.6034
0.6221
Lack of user-friendliness and user-
acceptance of solutions
30 1 4 3.3322 0.2074
0.9517
Solutions only address some of the
procurement processes and do not
address the complexity of the
processes
30 1 4 3.5610 0.4362
0.8716
Lack of qualified staff who can
work with modern procurement
system
30 1 4 2.4215 -0.7033
0.4625
Consultant expertise is lacking in
IT projects for procurement.
30 1 4 3.6211 0.4963
0.8854
Average score 3.1248 0.7118
The respondents indicated the challenges as follows: High introduction costs for new
solutions (3.2614), Suppliers were slow to link up with the procurement system
(3.1547), Difficulty in judging usefulness and potential of new IT solutions (2.5214),
Lack of user-friendliness and user-acceptance of solutions (3.3322), Solutions only
39
address some of the procurement processes and do not address the complexity of the
processes (3.5610), Lack of qualified staff who can work with modern procurement
system (2.4215), Consultant expertise is lacking in IT projects for procurement (3.6211).
The technology is available to permit technology procurement at all phases of the
procurement transaction but the technological solutions may be costly and some are not
so good at dealing with certain phases of the procurement. Where use of e-procurement
is not mandated, and then take up by contracting authorities appears to have been slow.
This can be attributed to the costs of re-organizing internal systems and low awareness
of the advantages. There are concerns about the perceived risks of investing in e-
procurement including technology risks and integration with existing information
systems as well as security and control mechanisms. Suppliers are faced with different e-
procurement platforms, arrangements and problems with the functionality of the
systems.
4.5.3 Possible solutions to challenges faced in implementing IT for
Procurement Processes
Providers of procurement solutions should have a vital interest in having well founded
arguments with which to defend the difficult-to-appreciate benefits of their solutions.
The insufficient user-friendliness and user acceptance should also be addressed. The
main objection of procurement organizations, i.e., the high installation costs of new
solutions should also be taken seriously. The cause of high costs lies to a decisive extent
in the organization of the buyer and supplier.
40
The procurement organizations must improve the quality of their master data themselves
and test whether their procurement process really needs to be so multifaceted and
complex. They must also build bridges for their suppliers. In many cases, their own
particular idea cannot be carried through on purchasing power alone, balanced
integration scenarios can help keeps a lot of spanners out of the works.
There is the need for increased standardization and alignment of e-procurement systems.
This also links in with problems arising from the lack of mutual recognition of national
electronic solutions. Risks concerning technology application and integration of
investing in the e-procurement with existing information systems as well as security and
control mechanisms should be analyzed and recommendations given when a company
needs to install the systems.
There is need to strengthen market signals, it will take considerable effort and skill to
carry out the role of intermediary between prospective suppliers and buyers of a new
technology. The basic idea of technology procurement is to condense into a much
shorter period the complicated exchange of market signals, intervening in a way that
accelerates and strengthens.
41
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter presents summary of findings as discussed in chapter four and
interpretations of the data analysis, conclusions and recommendations based on the
findings.
5.2 Summary of findings
Information technology now enables procurement activities to rethink how they conduct
business. The work process is not merely streamlined to eliminate paper handling costs,
but also to eliminate inventory, storage, and spoilage costs. Customer support is
improved. New technologies not only process, store, and communicate information
better but also stimulate thinking on how work processes can be improved. Instead of
first automating the paper process, the most advanced systems automate redesigned,
upgraded work processes, enabling information to be shared among all interested parties
simultaneously and responses to be solicited and obtained concurrently.
More important, information technology fosters changes in business practice. Supplies
are no longer bought in large quantities each fiscal quarter and stored in a depot awaiting
requisition. Using the new processes, the electronic requisition is in effect an electronic
order that goes directly to the manufacturer or distributor who ships the item to the
requisitioning activity, bypassing the depot.
42
The procurement office establishes the overall contract vehicle. Electronic networks
connect the requisitioned to the supplier. Commercial firms are re-engineering work
processes with advanced information technologies to achieve significant savings in time
and in costs. Technology processes such as paperless processes eliminate paper handling
and much of the redundant data-entry requirements, thereby reducing the need for some
clerical support. Paperless processes also reduce the number of personnel requirements.
No longer must large staffs review and control cumbersome work processes. Automated
systems will provide control, through system specifications managed by a smaller staff.
"Expert" systems will analyze many routine actions and provide recommendations to the
contracting officer, thereby reducing the number of buyers required. Exceptions will still
have to be referred to specialists for advice or opinion, but the routine actions can be
handled by the system. The result will be "flattened" organizations with fewer managers
and supporting staff members.
The ability of telecommunications technologies and networks to link remote offices to a
central office creates organizations that are decentralized for local customer support
purposes but are centralized for inventory management, long-term purchasing decision
making, or policy setting purposes. Information technologies allow organizations to
enjoy the benefits of both centralized and decentralized processing simultaneously.
5.3 Conclusion
Although Information and Technology based procurement systems have not yet been
adopted on a broad scale, the general attitude of buying organizations is positive and
43
inquisitive. They are beginning to realize the potential of emerging technologies to
change corporate procurement. Procurement systems promise to bring organizations one
step closer to a scenario of integrated, yet modularized systems, which are flexible
enough to handle all the different kinds of purchasing routines an organization usually
has in place. Built upon open standards, emerging technologies also promise flexibility
when it comes to adding or changing new functions and partners in order to keep up
with changing business requirements.
Finally, the ability to use technology to improve the contracting process depends in part
upon co-operation between the organizations that maintain data and organizations that
use the data. Because technology can link organizations electronically, organizations
need to communicate with their "customers" and "suppliers" before taking unilateral
actions that could adversely affect others.
5.4 Recommendations
Procurement regulations that refer to paper documents and processes need to be
modernized. Established procedures and procurement regulations must recognize
information and technology techniques if system developers are not to be constrained
when re-engineering work processes. Procurement management and executive courses
and seminars should be held to address the effect of automation on the procurement
function. Basic procurement courses should be revised to present automated contracting
processes and techniques.
44
Business and political representatives need to be educated on the dynamic changes that
information technology will bring to procurement and markets. Communities near
military installations are going to see their geographic advantage in local procurement
reduced as electronic commerce permits solicitation information to be shared with any
interested party including parties at remote locations. The message should be that their
contracting opportunities exist not only at the local base, but, taking their regional or
national competitors' view, also at any base to which they can economically ship
material.
For commodities, electronic ordering directly to the manufacturer may reduce business
prime contract opportunities, but might simultaneously increase business subcontract
opportunities (taken as the manufacturer uses local distributors to deliver priority items).
The procurement action reporting system should more accurately reflect these changes
in distribution channel arrangements between manufacturers and local distribution.
Business statistics will be distorted.
5.5 Suggestion for Further Studies
Further studies need to focus on the role of Information and Technology in procurement.
The study will address decision makers in organizations who are affected in some way
by IT solutions in procurement and will aim to offer them orientation for the conception
and further development of solutions
45
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APPENDICES
Appendix I: QUESTIONNAIRE
I’m a student at the University of Nairobi (School of Business). I’m carrying out an
academic research study for the partial fulfillment of the requirement for the Award of
the degree of Master of business administration. I kindly request you to accurately fill in
the information requested as per instructions given. The information provided will be
held in confidence and will be used for academic purposes only.
SECTION A: PERSONAL INFORMATION (Please tick where appropriate)
1. Gender:
Female ( ) Male ( )
2. Years of service ………………………………….
3. Terms of employment:
Temporary ( ) Permanent ( ) Contract ( )
4. Highest Attained Educational level:
Secondary ( ) College ( ) University ( )
50
SECTION B: PROCUREMENT PROCESS (Please tick where appropriate)
1. Rate the extent to which IT is employed in the following procurement process in
your organization? Rank by placing a tick in the appropriate place.
1= No extent, 2= Low extent, 3= Moderate extent and 4= Great extent
Description 1 2 3 4
Assessing the needs of procurement
Risk assessment in procurement
Specification
Approval mechanism
Selection of Method of procurement
Prequalification of bidders
Bidding Document Preparation
Invitation to bid
Issue of Bid Documents and opening of Bids
Evaluation of bids
Award and Signing of contract
Contract Administration
51
SECTION C: PROCUREMENT PERFORMANCE
2. To what extent do you agree with the procurement performance in relation to
information system? Rank by placing a tick in the appropriate place.
1= No extent, 2= Low extent, 3= Moderate extent and 4= Great extent
Description 1 2 3 4
Improving quality of services while its absence
or use of inappropriate means can act as a
barrier to change and may lead to deterioration
of the purchasing function
Measuring the performance of the purchasing
function yields benefits to organizations such
as cost reduction, enhanced profitability,
assured supplies, quality improvements and
competitive advantage
An important step towards reducing these risks
is to make a realistic assessment of those that
are most likely to occur in any procurement
52
SECTION D: IT PROCUREMENT PROCESS
3. What are the Information Systems used in the Procurement Process in your
organization? Explain how they have eased the process.
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
4. To what extent do you agree with the following IT Procurement Process in your
organization? Rank by placing a tick in the appropriate place.
1= No extent, 2= Low extent, 3= Moderate extent and 4= Great extent
Description 1 2 3 4
Your Business benefits through e-procurement
initiatives include cost reductions, closer
relationships, improved information, increased
53
efficiencies and the strategic use of purchasing
staff
IT procurement process enhances cost
reductions in companies can realize significant
reductions in both the cost of purchased items
and the actual cost of processing a purchase
order
IT procurement process brings closer
Relationships with suppliers
Leveraging Information in electronic
procurement enables visibility of
organizational purchasing data, creating the
opportunity to negotiate better terms with
suppliers based on volumes, price & quality
5. What challenges does your company face in implementing IT for Procurement
Processes?
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
54
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
…………………………………………………………………
6. What are the possible solutions to challenges faced by your company in
implementing IT for Procurement Processes
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
…………………………………………………………………
55
Appendix II: List of listed companies in NSE
AGRICULTURAL
1. Eaagads Ltd
2. Kapchorua Tea Co. Ltd
3. Kakuzi Ltd
4. Limuru Tea Co. Ltd
5. Rea Vipingo Plantations Ltd
6. Sasini Ltd
7. Williamson Tea Kenya Ltd
COMMERCIAL AND SERVICES
8. Express Ltd
9. Kenya Airways Ltd
10. Nation Media Group
11. Standard Group Ltd
12. TPS Eastern Africa (Serena) Ltd
13. Scan group Ltd
14. Uchumi Supermarket Ltd
15. Hutchings Biemer Ltd
16. Longhorn Kenya Ltd
56
TELECOMMUNICATION AND TECHNOLOGY
17. Access Kenya Group Ltd
18. Safaricom Ltd
19. Automobiles and Accessories
20. Car and General (K) Ltd
21. CMC Holdings Ltd
22. Sameer Africa Ltd
23. Marshalls (E.A.) Ltd
BANKING
24. Barclays Bank Ltd
25. CFC Stanbic Holdings Ltd
26. Diamond Trust Bank Kenya Ltd
27. Housing Finance Co Ltd
28. Kenya Commercial Bank Ltd
29. National Bank of Kenya Ltd
30. NIC Bank Ltd
31. Standard Chartered Bank Ltd
32. Equity Bank Ltd
33. The Co-operative Bank of Kenya Ltd
INSURANCE
34. Jubilee Holdings Ltd
57
35. Pan Africa Insurance Holdings Ltd
36. Kenya Re-Insurance Corporation Ltd
37. CFC Insurance Holdings
38. British-American Investments Company ( Kenya) Ltd
39. CIC Insurance Group Ltd
INVESTMENT
40. City Trust Ltd
41. Olympia Capital Holdings ltd
42. Centum Investment Co Ltd
43. Trans-Century
MANUFACTURING AND ALLIED
44. B.O.C Kenya Ltd
45. British American Tobacco Kenya Ltd
46. Carbacid Investments Ltd
47. East African Breweries Ltd
48. Mumias Sugar Co. Ltd
49. Unga Group Ltd
50. Eveready East Africa Ltd
51. Kenya Orchards Ltd
52. A.Baumann CO Ltd
58
CONSTRUCTION AND ALLIED
53. Athi River Mining
54. Bamburi Cement Ltd
55. Crown Berger Ltd
56. E.A.Cables Ltd
57. E.A.Portland Cement Ltd
ENERGY AND PETROLEUM
58. KenolKobil Ltd
59. Total Kenya Ltd
60. KenGen Ltd
61. Kenya Power & Lighting Co Ltd
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